Causes of Inflation

 

Inflation is a general rise in the prices of commodities and goods at a time. Inflation is not caused by any man-made or political cause (except in hyperinflation) but is caused due to series of events.

Causes of Inflation:

1. Demand-pull Inflation: It is due to aggregate demand growing faster than aggregate supply. It is caused when economy is at its full swing and there is high employment then the demand of goods in the market will be high as people will have more money in their hands and there will be more expenditure. So producers of goods in demand will think of increasing goods prices to make more profit as demand will be high and this will lead to increase in prices thereby increasing inflation rate.
2. Cost Pull Inflation: It is caused due to increase in prices of raw materials. For eg: There will be increase in crop prices if there is drought or flood like situation in most parts of country ruining crop production. So there will be less supply of food items and more demand in the market and this will lead to increase in prices of essential commodities whose use can't be eliminated so this will lead to increase in inflation rate.
3. Wage Pull Inflation: When the salaries of employees and wages of labourers increases with a high employment rate prevailing in the country, people will have more money to spend and increase their expenditure so there will be more cash flow in the economy, the national economy will boom, businesses flourish and more empolyment will lead to increase in inflation.
4. Currency Depriciation: This is caused by excessive printing of money by the government to pay their fiscal dues which will lead to the currency losing its value in the international market. This is a very dangerous situation as it can lead to hyperinflation like which happened  in Zimbabwe in 2008 where 1 trillion Zimbabwe dollars were equal to only 1 US Dollar.